VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 05/31/13 -- LED Medical Diagnostics Inc. (TSX VENTURE:LMD)(OTCQX:LEDIF)(FRANKFURT:LME) ("LED" or the "Company") today announced its financial results for the first quarter ended March 31, 2013, reported in United States dollars and in accordance with International Financial Reporting Standards ("IFRS"). The Company's results are presented in comparison to the three months ended December 31, 2012 and March 31, 2012 (which have been restated due to the Company's transition to United States dollar ("U.S.") functional and reporting currency and for the revision of its revenue recognition policy pertaining to sales made to Henry Schein Inc.), also in accordance with IFRS all balances are expressed in U.S. dollars unless otherwise stated.
Financial Highlights
-- Revenue decreased by 69% to $310,000 for the three months ended March 31, 2013 compared to $1.0 million over the same period in the prior year. -- EBITDA(1) for three months ended March 31, 2013 of ($638,000) compared to the same period in the prior year of approximately ($961,000).
"The shift in our exclusive distribution alliance from Henry Schein Inc. to DenMat Holdings, LLC ("Denmat") in late 2012 caused a temporary disruption to our activities in the marketplace in early 2013. As a result of the transition in our sales and marketing activities to our new distribution partner, the Company's revenues were lower in the first quarter of fiscal 2013," stated Peter Whitehead, LED Founder and Chief Executive Officer. "With the DenMat relationship transition now complete, we expect to see an aggressive sales and marketing program working at full pace by mid 2013 which is expected to result in increased future revenue. We have also experienced significant increased sales of our VELscope Vx product since March 31, 2013 and anticipate improved financial results for the second quarter of fiscal 2013 accordingly with the anticipation of increased future demand for our VELscope Vx product with increasing recurring consumable sales as our customer base increases."
For the three months ended March 31, 2013, the Company reported revenues of approximately $310,000 which is lower than the approximately $1.4 million for three months ended December 31, 2012 and approximately $1.0 million for the three months ended March 31, 2012.
Gross margin(2) was 53% during the three months ended March 31, 2013, compared to the three months ended December 31, 2012 of 46% and to 44% during the three months ended March 31, 2012. The Company's margin varies depending on the mix of VELscope equipment versus disposables sales for any given period.
Core operating expenses (excluding stock-based compensation, deferred share unit compensation, mark to market adjustments on Canadian dollar denominated warrants and other operating expenses)(3) for the three months ended March 31, 2013 of approximately $802,000 were 10% higher than the three months ended December 31, 2012 but 43% lower than the three months ended March 31, 2012.
EBITDA for the three months ended March 31, 2013 was approximately ($638,000) compared to approximately ($84,000) for the three months ended December 31, 2012 and ($961,000) for the three months ended March 31, 2012. The Company reported a net loss of approximately $1.33 million for the three months ended March 31, 2013 compared to a net loss of approximately $175,000 for the three months ended December 31, 2012 and $1.25 million for the three months ended March 31, 2012. The Company incurred significant non-cash costs in the period primarily due to the issuance of the DSU's which are listed as non-cash on the statement of cash flow. The Company will continue to incur these items in future although perhaps not at this level given the magnitude of the DSU grant in FY13 Q1.
Cash was approximately $607,000 with negative net working capital(4) of approximately $1.1 million as of March 31, 2013 compared to cash of approximately $970,000 with negative net working capital of approximately $97,000 as of December 31, 2012.
Business Highlights
Notable developments and achievements during the first quarter of fiscal 2013 included the following:
-- On January 9, 2013, the Corporation announced that it had completed the second tranche of an expedited non-brokered private placement of 1,300,000 Common Shares at an issue price of $0.25 per share for gross proceeds of $325,000. In combination with the first tranche, LED raised a total of $1,162,500 and issued 4,650,000 common shares at $0.25 per share. All of the securities issued in connection with the private placement are subject to a restricted period that expires four months after the issuance date. The proceeds are being used by LED to support product development, to purchase inventory and for working capital purposes. -- On January 9, 2013, the Corporation announced that its VELscope Vx enhanced oral assessment device will now be used by Chicago Otolaryngology Associates for oral mucosal abnormality assessment and when performing surgery on oral cancer patients. -- On January 23, 2013, the Corporation announced its Public Market Development and Communications Plan for 2013, designed to create a global understanding of its proprietary, patented technology platforms and their significant potential. -- On January 28, 2013, the Corporation announced that it had granted a total of 448,000 incentive stock options to consultants of the Company. Each stock option is exercisable to acquire one Common Share of the Company at $0.40 per share and can be exercised for a 3 year term. -- On January 29, 2013, the Corporation announced that a recent scientific review in the highly respected publication, The Journal of the American Dental Association, underscores the need for adjunctive screening technologies to help detect oral cancer and pre-cancer in earlier stages. -- On February 19, 2013, the Corporation announced that its common shares are now officially quoted on the Frankfurt Stock Exchange in the open market segment via the symbol "LME". -- On February 25, 2013, the Corporation announced the appointment of Wayne Rees as Senior Vice President of its wholly-owned subsidiary, LED Dental Inc. ("LED Dental"). -- On February 26, 2013, the Corporation announced that it began trading on the OTCQX International (symbol: "LEDIF"), a segment of the OTCQX® marketplace reserved for high-quality, non-U.S. companies listed on a qualified stock exchange in their home country. U.S. investors can find current financial disclosures and Real-Time Level 2 quotes for the company on www.otcmarkets.com. -- On March 6, 2013, the Corporation announced that it is expanding its investigation of the application of its tissue fluorescence visualization technology to the detection of skin cancer and other dermatologic diseases. -- On April 24, 2013, the Corporation, a strategic partner in Second Step Laboratory Services with PMI, is pleased to announce the results of an independent study published in "Oral Surgery, Oral Medicine, Oral Pathology, Oral Radiology" (Vol. 114 No. 3) that confirms the use of quantitative cytology ("QC") testing, as an adjunctive tool, successfully identifying high-risk potentially malignant disorders of the oral mucosa. -- On May 7, 2013), the Corporation cited a recent clinical study documenting the ability of its VELscope® Vx Enhanced Oral Assessment adjunctive technology to detect cancerous and pre-cancerous lesions that are missed by conventional exams.
The Audit Committee of the Company has reviewed the contents of this news release.
Non-GAAP Measures
The following and preceding discussion of financial results includes reference to Gross Margin, EBITDA, Core Operating Expenses and Working Capital, which are all non-IFRS financial measures. The measure of gross margin is provided as management believes this is a good indicator in evaluation the operating performance of the Company. EBITDA is defined as operating loss less other operating expenses. The measure is provided as a proxy for the cash earnings from the operations of the business as operating loss for the Company includes non-cash amortization and depreciation expense. The measure of core operating expenses is provided as a proxy for cash expenses incurred from the operations of the business. The measure of working capital is provided as management believes this is a good indicator of the operating liquidity available to the Company.
Change in Functional and Reporting Currency
The Company has changed the functional currency of the parent company entity from Canadian dollar to United States dollar as of January 1, 2012 to reflect the transition from an entity with some operations to a holding company for the group companies upon the completion of the reverse takeover ("RTO") in November 2011. This change was effected prospectively from January 1, 2012 onwards.
The Company also changed their reporting currency on December 31, 2012 from Canadian dollars to U.S. dollars given LED's listing on the OTC stock exchange in the United States and on the Frankfurt Stock Exchange in early 2013 reflective of LED becoming a global Company. This change also results in increased comparability for LED to other global technology companies.
Revision to Revenue Recognition Policy
The Company also revised its prior revenue recognition policy pertaining to the sales of its product in fiscal 2011 and 2012 to Henry Schein from "sell to this distributor" to "sell through this distributor to their end customers". While legal title with the risks and rewards of ownership is transferred to Henry Schein as at the date at which the Company's products are sold to this distributor, the participation by the Company in the provision to this distributor of special market development pricing adjustments pertaining to LED product to increase overall market share of the Company results in the Company not being able to reasonably estimate such marketing oriented expenses at the time of sale and shipment to Henry Schein resulting in the required deferral of revenue recognition until all such marketing oriented expenses are fully determinable. There is no such issue in the Company's distribution arrangement with Denmat resulting in the Company recognizing revenue at the time of sale and shipment to Denmat. As a result, the financial results for prior periods have been restated.
(1) EBITDA or Earnings before Interest, Taxes, Depreciation and Amortization is a non-IFRS measure that does not have a standardized meaning and may not be comparable to a similar measure disclosed by other issuers. This measure does not have a comparable GAAP measure. EBITDA referenced here relates to operating loss and excludes amortization, depreciation, stock-based compensation, deferred share unit compensation and mark to market adjustments on Canadian dollar denominated warrants.. Please refer to the reconciliation of EBITDA to reported financial results attached to this press release.
(2) Non-IFRS measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Gross margin referenced here relates to revenues less cost of sales.
(3) Non-IFRS measure that does not have a standard meaning and may not be comparable to a similar measure disclosed by other issuers. Core operating expenses excludes stock-based compensation, deferred share unit compensation, mark to market adjustments on Canadian dollar denominated warrants and other operation expenses.
(4) Non-IFRS measure that does not have a standardized meaning and may not be comparable to a similar measure disclosed by other issuers. This measure does not have a comparable IFRS measure. Working Capital is defined as current assets less current liabilities.
Forward-Looking Statements
This press release contains statements which, to the extent that they are not recitations of historical fact, may constitute forward-looking information under applicable Canadian securities legislation. Such forward-looking statements or information includes financial and other projections as well as statements regarding the Corporation's future plans, objectives, performance, revenues, growth, profits, operating expenses or the Corporation's underlying assumptions and the Company's intention to expand its technology beyond dental applications. The words "may", "would", "could", "will", "likely", "expect", "anticipate", "intend", "plan", "forecast", "project", "estimate" and "believe" or other similar words and phrases may identify forward-looking statements or information. Persons reading this Management's Discussion and Analysis are cautioned that such statements or information are only predictions, and that the Corporation's actual future results or performance may be materially different. Factors that could cause actual events or results to differ materially from those suggested by these forward-looking statements include, but are not limited to: economic conditions; dilution; limited history of profits and operations; operational risk; distributor risks; working capital; potential conflicts of interest; speculative investment; volatility of stock price; intellectual property risks; disruptions in production; reliance on key personnel; seasonality; management's estimates; development of new customers and products risks; stock price volatility risk; sales and marketing risk; competitors and competition risk; regulatory requirements; reliance on few suppliers; reliance on subcontractors; operating cost and quarterly results fluctuations; fluctuations in exchange rates; product liability and medical malpractice claims; access to credit and additional financing; taxation; market acceptance of the Corporation's products and services; customer and industry analyst perception of the Corporation and its technology vision and future prospects; technological change, new products and standards;
risks related to acquisitions and international expansion; reliance on large customers; concentration of sales; international operations and sales; management of growth and expansion; dependence upon key personnel and hiring; the Corporation not adequately protecting its intellectual property; risks related to product defects and product liability; and including, but not limited to, other factors described in the Corporation's reports filed on SEDAR, including its financial statements and management's discussion and analysis for the year ended December 31, 2012 and three months ended March 31, 2013. In drawing a conclusion or making a forecast or projection set out in the forward-looking information, the Corporation takes into account the following material factors and assumptions in addition to the above factors: the Corporation's ability to execute on its business plan; the acceptance of the Corporation's products and services by its customers; the timing of execution of outstanding or potential customer contracts by the Corporation; the sales opportunities available to the Corporation; the Corporation's subjective assessment of the likelihood of success of a sales lead or opportunity; the Corporation's historic ability to generate sales leads or opportunities; and that sales will be completed at or above the Corporation's estimated margins. This list is not exhaustive of the factors that may affect the Corporation's forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. All forward-looking statements made in this press release are qualified by this cautionary statement and there can be no assurance that actual results or developments anticipated by the Corporation will be realized. The Corporation disclaims any intention or obligation to update or revise forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
About LED Medical Diagnostics Inc.
Founded in 2003 and headquartered in Burnaby, British Columbia, Canada, LED Medical Diagnostics Inc. is a leading developer of LED-based visualization technologies for the medical industry. The Company is currently listed on the Toronto Stock Exchange (TSX-V) under the symbol "LMD", the OTCQX under the symbol "LEDIF", as well as the Frankfurt Stock Exchange under the symbol "LME". For more information, visit www.ledmd.com. Through its wholly-owned subsidiary, LED Dental Inc., the company manufactures the VELscope® Vx Enhanced Oral Assessment System, the first system in the world to apply tissue fluorescence visualization technology to the oral cavity. VELscope® Vx devices are now used to conduct more screenings for oral cancer and other oral tissue abnormalities than any other adjunctive device. For more information, visit www.leddental.com.
LED MEDICAL DIAGNOSTICS INC. Interim Condensed Consolidated Statements of Financial Position (Unaudited and Expressed in U.S. Dollars) As at As at March 31, December 31, 2013 2012 ------------------------------ ASSETS CURRENT Cash $ 606,910 $ 969,584 Restricted cash 4,921 5,026 Receivables 273,358 1,514,577 Inventory 416,450 296,467 Inventory held by the distributor 518,400 518,400 Prepayments 69,321 69,300 ------------------------------ 1,889,360 3,373,354 PROPERTY AND EQUIPMENT 24,826 28,015 PATENTS AND INTELLECTUAL PROPERTY 81,716 88,167 ------------------------------ $ 1,995,902 3,489,536 ------------------------------ ------------------------------ LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Trades payable and accrued liabilities $ 1,632,556 $ 1,689,009 Advances from the distributor 1,362,290 1,778,112 Current portion of finance lease obligation 3,144 2,982 ------------------------------ 2,997,990 3,470,103 LONG TERM LIABLILTIES Long term portion of finance lease obligation 6,029 6,879 Warrants 102,239 140,467 ------------------------------ 3,106,258 3,617,449 ------------------------------ SHAREHOLDERS' DEFICIT Share capital 24,658,241 24,658,241 Stock-based payments reserve 413,826 62,495 Warrants reserve 277,748 277,748 Accumulated other comprehensive income 474,458 474,458 Deficit (26,934,629) (25,600,855) ------------------------------ (1,110,356) (127,913) ------------------------------ $ 1,995,902 $ 3,489,536 ------------------------------ ------------------------------ LED MEDICAL DIAGNOSTICS INC. Interim Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited and Expressed in U.S. Dollars) For the Three Months ended --------------------------- March 31, March 31, 2012 2013 (Restated) ---------------------------------------------------------------------------- SALES $ 309,590 $ 999,138 COST OF GOODS SOLD 146,366 562,421 ------------------------------ 163,224 436,717 ------------------------------ EXPENSES Sales and marketing 332,036 883,315 Research and development 89,757 173,987 Administration 379,728 340,473 Stock-based compensation 351,331 - Deferred share unit compensation 287,581 - Mark to market adjustments on Canadian dollar denominated warrants (38,229) 215,200 Other operating expenses 9,640 17,273 ------------------------------ 1,411,844 1,630,248 ------------------------------ OPERATING LOSS (1,248,620) (1,193,531) ------------------------------ OTHER INCOME (EXPENSES) Foreign exchange gain (loss) (82,456) (60,308) Interest income - 287 Miscellaneous income (expenses) - 2,102 ------------------------------ (82,456) (57,919) ------------------------------ NET LOSS BEFORE INCOME TAXES (1,331,076) (1,251,450) INCOME TAXES 2,698 - ------------------------------ NET LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD $ (1,333,774) $ (1,251,450) ------------------------------ ------------------------------ NET LOSS PER SHARE - BASIC AND DILUTED $ (0.03) $ (0.03) ------------------------------ ------------------------------ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED 40,985,508 36,335,508 ------------------------------ ------------------------------ LED MEDICAL DIAGNOSTICS INC. Interim Condensed Consolidated Statements of EBITDA and Loss (Expressed in U.S. Dollars) For the Three Months ended ---------------------------------- March 31, March 31, 2012 2013 (Restated) ---------------------------------------------------------------------------- SALES $ 309,590 $ 999,138 COST OF GOODS SOLD 146,366 562,421 ---------------------------------- 163,224 436,717 ---------------------------------- EXPENSES Sales and marketing 332,036 883,315 Research and development 89,757 173,987 Administration 379,728 340,473 ---------------------------------- 801,521 1,397.775 ---------------------------------- EBITDA (638,297) (961,058) ---------------------------------- OTHER INCOME (EXPENSES) Stock-based compensation (351,331) - Deferred share unit compensation (287,581) - Mark to market adjustments on Canadian dollar denominated warrants 38,229 (215,200) Other operating expenses (9,640) (17,273) Foreign exchange gain (loss) (82,456) (60,308) Interest income - 287 Miscellaneous income (expenses) - 2,102 ---------------------------------- (692,779) (290,392) ---------------------------------- NET LOSS BEFORE INCOME TAXES (1,331,076) (1,251,450) INCOME TAXES 2,698 - ---------------------------------- NET LOSS FOR THE PERIOD UNDER IFRS $ ( 1,333,774) $ ( 1,251,450) ---------------------------------- ---------------------------------- LED MEDICAL DIAGNOSTICS INC. Interim Condensed Consolidated Statements of Changes in Shareholders' Deficit (Unaudited and Expressed in U.S. Dollars) ---------------------------------------------------------------------------- Stock-based Share Payments Warrants Number of Capital Reserves Reserve Shares $ $ $ ---------------------------------------------------------------------------- Balance, January 1, 2013 40,985,508 $ 24,658,241 $ 62,495 $ 277,748 Stock-based compensation - - 351,331 - Net loss for the period - - - - ---------------------------------------------------------------------------- Balance, March 31, 2013 40,985,508 $ 24,658,241 $ 413,826 $ 277,748 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Balance, January 1, 2012 (Restated) 36,335,508 $ 23,713,352 $ 62,495 $ 277,748 Net loss for the period - - - - Reclassification of warrants - (136,624) - - ---------------------------------------------------------------------------- Balance, March 31, 2012 (Restated) 36,335,508 $ 23,576,728 $ 62,495 $ 277,748 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- LED MEDICAL DIAGNOSTICS INC. Interim Condensed Consolidated Statements of Changes in Shareholders' Deficit (Unaudited and Expressed in U.S. Dollars) -------------------------------------------------------------------------- Other Total Comprehensive Shareholders' Deficit Income Equity $ $ $ -------------------------------------------------------------------------- Balance, January 1, 2013 $ (25,600,855) $ 474,458 $ (127,913) Stock-based compensation - - 351,331 Net loss for the period (1,333,774) - (1,333,774) -------------------------------------------------------------------------- Balance, March 31, 2013 $ (26,934,629) $ 474,458 $ (1,110,356) -------------------------------------------------------------------------- -------------------------------------------------------------------------- Balance, January 1, 2012 (Restated) $ ( 24,733,922) $ 474,458 $ ( 205,869) Net loss for the period (1,251,450) - (1,251,450) Reclassification of warrants - - (136,624) -------------------------------------------------------------------------- Balance, March 31, 2012 (Restated) $ (25,985,372) $ 474,458 $ (1,593,943) -------------------------------------------------------------------------- -------------------------------------------------------------------------- LED MEDICAL DIAGNOSTICS INC. Interim Condensed Consolidated Statements of Cash Flows (Unaudited and Expressed in U.S. Dollars) For the Three Months ended ------------------------------ March 31, 2012 March 31, (Restated - 2013 Note 18) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the year $ (1,333,774) $ (1,251,450) Adjustments to net loss for items not involving cash: Depreciation of equipment 3,189 10,822 Amortization of intangible assets 6,451 6,451 Accrued interest on shareholder loans - 2,583 Mark to market adjustments on Canadian dollar denominated warrants (38,228) 215,200 Stock based compensation 351,331 - ------------------------------ (1,011,031) (1,016,394) ------------------------------ Changes in working capital assets and liabilities: Receivables 1,241,219 187,891 Inventory (119,983) 328,475 Inventory held by distributor - (241,247) Prepayments (21) (38,179) Trades payable and accrued liabilities (56,453) (71,816) Advances from the distributor (415,822) 899,271 ------------------------------ Changes in working capital assets and liabilities 648,940 1,064,395 ------------------------------ Cash flows provided by (used in) operating activities (362,091) 48,001 ------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment - (16,758) Restricted cash 105 19,569 ------------------------------ Cash flows provided by investing activities 105 2,811 ------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Repayment of finance lease obligation (688) (559) Repayment of shareholder loans - (105,379) ------------------------------ Cash flows used in financing activities (688) (105,938) ------------------------------ CHANGE IN CASH (362,674) (55,126) CASH - BEGINNING OF PERIOD 969,584 975,772 ------------------------------ CASH - END OF PERIOD $ 606,910 $ 920,646 ------------------------------ ------------------------------
Restatement
In the preparation of the Company's consolidated financial statements for the year ended December 31, 2012, management identified historical errors as follows:
-- the functional currency of its subsidiary, LED Dental Inc. should have been U.S. dollars rather than Canadian dollars from June 1, 2006; -- the functional currency of LED, should have been U.S. dollars rather than Canadian dollars from January 1, 2012; and, -- revenue recognition for a distributor's agreement which had previously been recognized upon shipment to the distributor has been corrected to be recognized upon sell through to the end customer.
As a result, the Company has restated its consolidated financial statements for the three months ended March 31, 2012.
The following table summarizes the impact of the restatement adjustments on the Company's previously reported consolidated financial statements for the three months ended March 31, 2012:
Correcting As reported adjustment As restated --------------------------------------------- Consolidated statements of loss and comprehensive loss Sales $ 1,827,164 ($ 828,026) $ 999,138 Cost of goods sold 780,821 (218,400) 562,421 Depreciation and amortization 17,414 (141) 17,273 Mark to market adjustments on Canadian dollar denominated warrants - 215,200 215,200 Foreign exchange gain (loss) (20,756) (39,552) (60,308) Net and comprehensive loss for the period (387,213) (864,237) (1,251,450) Loss per share - basic and diluted ($0.01) ($0.02) ($0.03) Consolidated statements of shareholders' deficit Deficit, beginning of period ($ 23,342,822) ($ 1,391,100) ($24,733,922) Deficit, end of period ($ 23,730,035) ($ 2,255,337) ($25,985,372) ---------------------------------------------